Retirement Tax Planning After the One Big Beautiful Bill Act: Key Takeaways from OBBBA 1 Year Later
Key Points – Retirement Tax Planning After the One Big Beautiful Bill Act: Key Takeaways from OBBBA 1 Year Later
- Reviewing the Impact of the One Big Beautiful Bill Act One Year Later
- The Power of Forward-Looking Tax Planning for Retirement
- Tax Planning vs. Tax Preparation
- Understanding Bracket Management and Liquidity Planning
- 7-Minute Read | 35-Minute Watch
Tax Planning for Retirement
In July 2025, sweeping tax legislation known as the One Big Beautiful Bill Act (OBBBA) was signed into law. At the time, it generated significant attention, largely because it prevented a major tax shift that had been looming for years: the expiration of key provisions from the Tax Cuts and Jobs Act (TCJA).
Now, one year later, financial professionals and taxpayers alike are beginning to fully understand the implications, not just of what the law changed, but of what it preserved. More importantly, the conversation has shifted toward something deeper: how proactive tax planning (not reactive tax filing) can dramatically shape long-term financial outcomes.
This article examines the real-world impact of the OBBBA and highlights why tax planning for retirement has become one of the most important components of financial planning.
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Tax Planning vs. Tax Preparation
Many people experience taxes as a backward-looking exercise. You earn income, make financial decisions, and then your CPA prepares a tax return reflecting what already happened. But this model leaves little room for optimization.
Forward-looking tax planning is fundamentally different. It begins with a comprehensive view of your financial life: your income streams, assets, goals, retirement plans, and legacy intentions. From there, tax decisions are made proactively (often years in advance) to minimize lifetime tax liability.
This shift in mindset is critical. Rather than asking, “How much tax do I owe?” ask yourself, “What decisions can I make today to control how much tax I pay over time?” This approach is known as tax bracket management, and it allows individuals to:
- Smooth income across years to stay in lower tax brackets
- Strategically draw from different account types (taxable, tax-deferred, tax-free)
- Reduce exposure to future tax increases
- Avoid unintended tax consequences that often arise in retirement
In short, tax planning turns taxes from a fixed outcome into a controllable variable. We’ll further explain tax bracket management throughout this article as we review different planning opportunities from the OBBBA.
What the OBBBA Actually Did
The headline feature of the OBBBA was its “permanent” extension of TCJA tax rates, which were originally set to expire after December 31, 2025. Without this legislation, tax rates had been scheduled to revert to the higher pre-TCJA levels from 2017.1
2026 Tax Rates
| Tax rate | Single filer | Married filing jointly (or surviving spouse) | Head of household | Married filing separately |
|---|---|---|---|---|
| 10% | $0 to $12,400 | $0 to $24,800 | $0 to $17,700 | $0 to $12,400 |
| 12% | $12,401 to $50,400 | $24,801 to $100,800 | $17,701 to $67,450 | $12,401 to $50,400 |
| 22% | $50,401 to $105,700 | $100,801 to $211,400 | $67,451 to $105,700 | $50,401 to $105,700 |
| 24% | $105,701 to $201,775 | $211,401 to $403,550 | $105,701 to $201,750 | $105,701 to $201,775 |
| 32% | $201,776 to $256,225 | $403,551 to $512,450 | $201,751 to $256,200 | $201,776 to $256,225 |
| 35% | $256,226 to $640,600 | $512,451 to $768,700 | $256,201 to $640,600 | $256,226 to $384,350 |
| 37% | $640,601 or more | $768,701 or more | $640,601 or more | $384,351 or more |
Source: IRS
FIGURE 1 – 2026 Tax Rates – IRS/Nerd Wallet2
2017 (Pre-TCJA) Tax Rates
| Rate | Single filers | Married, filing jointly |
|---|---|---|
| 10% | $0 – $9,325 | $0 – $18,650 |
| 15% | $9,326 – $37,950 | $18,651 – $75,900 |
| 25% | $37,951 – $91,900 | $75,901 – $153,100 |
| 28% | $91,901 – $191,650 | $153,101 – $233,350 |
| 33% | $191,651 – $416,700 | $233,351 – $416,700 |
| 35% | $416,701 – $418,400 | $416,701 – $470,700 |
| 39.6% | $418,401+ | $470,701+ |
FIGURE 2 – 2017 (Pre-TCJA) Tax Rates – Kiplinger/IRS3
Why Permanency Changes the Game
Are you wondering why we put the word permanent in quotes? Unlike the TCJA, which had a predefined expiration date, the OBBBA doesn’t have one. While no tax law is truly permanent, the removal of an imminent expiration gives financial planners and households something incredibly valuable: certainty. That certainty enables long-term planning decisions such as:
- Multi-year Roth conversion strategies
- Lifetime tax bracket management
- Investment allocation decisions based on tax efficiency
- Estate planning aligned with stable tax assumptions
While the OBBBA provides a longer runway for thoughtful planning, that should include preparing for the possibility of higher tax rates in the future. Keep in mind that tax rates haven’t been permanent since the ratification of the 16th Amendment in 1913.4
Key New Provisions
Beyond extending tax rates, the OBBBA introduced additional measures, including a temporary senior deduction. Let’s dive into how the $6,000 senior tax deduction works.
The New $6,000 Senior Tax Deduction for 2026
Individuals age 65 and older can claim an additional $6,000 deduction. If you’re married and you and your spouse are 65+, you’re eligible for a $12,000 deduction. However, income limits apply to be eligible for the senior deduction:
- Up to $75,000 for single filers
- Up to $150,000 for married couples filing jointly
When Does the $6,000 Deduction Start?
The senior deduction began for the 2025 tax year, but it’s not a permanent provision of the OBBBA. It will be in effect through the 2028 tax year.5
This provision can create meaningful tax savings for retirees and introduces new planning opportunities, especially when coordinated with investment income and withdrawal strategies.
Tax Bracket Management: The Core Retirement Tax Strategy
Bracket management involves intentionally filling lower tax brackets each year. For example:
- A retiree in the 12% bracket might withdraw or convert additional income up to the top of that bracket.
- Doing so locks in lower tax rates now instead of risking higher rates later.
What Is a Roth Conversion?
A Roth conversion is when you move money from a pre-tax retirement account (like a traditional IRA or 401(k)) into a Roth IRA.
- Contribute to traditional IRAs or 401(k).
- You will be required to pay ordinary income tax on the amount that you choose to convert from a traditional account into a Roth IRA, but the money will then grow tax-free.
- Withdrawals from the Roth IRA will then come out tax-free in retirement under certain IRS conditions.
How Roth Conversions Are Taxed: An Example
For example, if you convert $50,000, that $50,000 gets added to your taxable income. There is no early withdrawal penalty if you follow conversion rules, but you do owe income tax.
Should You Do a Roth Conversion?
There are several potential pros to doing Roth conversions, but there are several potential cons as well.
When a Roth Conversion May Make Sense
Roth conversions are a tax planning strategy that many people consider before and after retirement. This retirement tax planning strategy may help to:
- Reduce future RMD exposure
- Smooth taxable income over time
- Build tax-free assets through Roth conversions
- Increase flexibility in retirement
Unintended Consequences of Roth Conversions
However, every financial decision carries tax implications, often beyond what is immediately visible. Roth conversion pitfalls may include:
- Triggering higher Medicare IRMAA premiums by increasing income. See the 2026 IRMAA thresholds here.6
- Increasing the taxable portion of Social Security benefits
- Pushing capital gains from 0% to 15% unintentionally
- Losing eligibility for deductions or credits
- Increasing your Modified Adjusted Gross Income (MAGI) above $125,000 for single filers and $250,000 for joint filers may trigger a 3.8% Net Investment Income Tax (NIIT).7
These “domino effects” may dramatically alter outcomes. They often occur because decisions are made in isolation rather than within a comprehensive plan.
The Role of Liquidity Planning
Another overlooked factor is liquidity. Many retirees accumulate wealth in tax-deferred accounts like 401(k)s and IRAs. While efficient during working years, this can create challenges later. When large expenses arise, such as vehicles, home repairs, healthcare, withdrawals may trigger unintended tax consequences. Proper planning ensures that:
- Funds are available in the right accounts
- Withdrawals are optimized for tax efficiency
- Large expenses do not disrupt the broader financial plan
Taxes and Investments Are Inseparable
One of the central insights reinforced by the OBBBA is that tax strategy and investment strategy cannot be separated. Every investment decision carries tax implications. Consider:
- Municipal bonds vs. taxable bonds
- Dividend-paying stocks vs. growth stocks
- Taxable brokerage accounts vs. retirement accounts
- Timing of asset sales
The goal is not just to generate returns, but to maximize after-tax returns. That requires coordination between financial planners and tax professionals.
A Case Study: When Good Intentions Go Wrong
Consider a hypothetical retiree named Bob. Bob hears about lower tax rates and assumes he’s in the clear. Confident in his position, he makes two major decisions:
- Withdraws $80,000 from his traditional IRA to buy a new vehicle
- Invests in home improvements expecting energy tax credits
Unfortunately, Bob didn’t consult a financial planner or tax professional. The expected energy credit expired at the end of 2025, so what began as a straightforward decision turned into a cascade of potential tax consequences:8
- The $80,000 withdrawal significantly increasing his taxable income.
- His Social Security benefits becoming more heavily taxed
- Potentially moving into a higher tax bracket
- Potentially triggering higher Medicare premiums
- His qualified dividends shifting from 0% to 15% tax rates
Why Timing and Coordination Matter
Bob’s situation illustrates how tax bracket management is a powerful tool. It’s not just what you do; it’s when and how you do it. With proper planning, Bob could have:
- Gradually withdrawn funds over several years at lower tax rates
- Converted assets to a Roth IRA
- Built a tax-efficient pool of funds for future purchases
- Avoided bracket spikes and secondary tax effects
Retirement Tax Planning FAQs
Q: What is the $6,000 deduction for seniors?
The $6,000 senior deduction is an additional tax deduction for individuals 65+ that was a temporary provision under the OBBBA through 2028. It can be claimed in addition to the standard deduction or itemized deductions.
Q: What is a Roth conversion?
A Roth conversion involves converting money from a traditional IRA or 401(k) into a Roth IRA. While the money converted is taxed at ordinary income the year of the conversion, it will grow tax-free and come out tax-free under certain IRS conditions.
Q: Does a Roth conversion count as an RMD?
A Roth conversion doesn’t count as a Required Minimum Distribution. If you want to do a Roth conversion and are subject to RMDs, you must take your RMD prior to doing the conversion. Keep in mind that the RMD can’t be converted, but the remaining funds can. Doing Roth conversions prior to your RMD age (currently 73) may help to reduce your annual RMDs.
Q: How is Social Security taxed?
Did you know that up to 50% or 85% of your Social Security benefits can be taxable? The percentage of your Social Security benefits that are taxable is determined based on your provisional income and tax filing status.9 You can calculate your provisional income by finding the sum of your Adjusted Gross Income, nontaxable interest, and half of your projected Social Security benefits.
The Bigger Picture: Taxes as a Lifetime Equation
Many people focus on minimizing taxes in a given year. But this can be shortsighted. The real objective is to minimize taxes over a lifetime. That may involve:
- Paying slightly more tax today at lower rates
- Avoiding much higher taxes later
- Preserving flexibility for future decisions
- Aligning tax outcomes with broader financial goals
Final Takeaways on Retirement Tax Planning After the One Big Beautiful Bill
One year after its passage, the One Big Beautiful Bill Act has proven to be a pivotal piece of tax legislation. It prevented widespread tax increases, introduced new opportunities—particularly for retirees—and created a more stable foundation for long-term planning.
But perhaps its most important contribution is what it highlights:
- Taxes are not just an annual event; they are a lifelong consideration
- Planning is far more powerful than preparation
- Small decisions can have large, lasting consequences
- Coordination between financial and tax strategies is essential
In today’s environment, the question is no longer whether taxes matter; it’s whether you’re actively managing them. Because in the end, the difference between reactive and proactive planning isn’t just theoretical. It’s measurable in real dollars, over real lifetimes.
How Confident Are You When It Comes to Retirement Tax Planning and Understanding the OBBBA?
Now that we’re one year removed from the OBBBA becoming law, how confident are you in understanding the bill’s provisions and how it impacts retirement tax planning? If you have questions about the OBBBA, retirement tax planning, and how it all relates to your unique situation, our team at Modern Wealth is here to help.
Tax planning is one of our Modern Wealth Advantage Offerings and plays a critical role in a connected, comprehensive financial plan. The same goes for estate planning, investment management, and insurance planning. That’s why our advisors are supported by CPAs, CFAs, and estate and insurance specialists.
At Modern Wealth, we strive to help individuals and families build confidence across each of those areas so they can enjoy today with confidence for tomorrow. To start taking actionable steps toward assessing and building your financial confidence, connect with our team by getting your Modern Confidence Score below.
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Resources Mentioned in This Article
[1] https://taxfoundation.org/blog/2026-tax-brackets-tax-cuts-and-jobs-act-expires/
[3] https://www.kiplinger.com/taxes/avoid-paying-higher-taxes-in-2026-what-you-can-do-now
[4] https://www.archives.gov/milestone-documents/16th-amendment
[6] https://www.medicare.gov/publications/11579-medicare-costs.pdf
[7] https://www.fidelity.com/viewpoints/retirement/roth-ira-conversion-after-50
[9] https://www.investopedia.com/terms/p/provisional-income.asp
Investment advisory services offered through Modern Wealth Management, LLC, a registered investment adviser.
The views expressed represent the opinion of Modern Wealth Management, LLC, a registered investment adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.